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Secret recipe

Alongside salt, vinegar and sugar, soy sauce is one of the most important and heavily used seasonings in Chinese cuisine. While its precise origin is hard to pinpoint – some say it dates back to the Han Dynasty – historians believed that it evolved out of the necessity to replace salt, an expensive commodity at the time.

Today soy sauce is big business. The market was believed to be worth as much as $23 billion in 2017, according to Ibisworld, a market research company. So lucrative, in fact, that Hong Kong’s Lee Kum Kee, which makes soy sauce and oyster sauce, grabbed headlines when it bought London’s landmark “Walkie Talkie” skyscraper for £1.3 billion ($1.8 billion), a record-breaking transaction for a single building in the UK.

Similarly, China’s biggest soy sauce maker Haitian was recently crowned the world’s largest seasoning company by market capitalisation. The Foshan-based firm, which has seen its value triple since its initial public offering in 2014, is now worth over Rmb157 billion ($24 billion), surpassing US seasoning giant McCormick, which is valued at $23.6 billion.

One reason for the jump in valuation is because it is has a leading position in China’s soy sauce market. Haitian, which controls 18% of the segment, saw its revenue rise 17% in 2017 compared with a year ago to Rmb14.5 billion. Net profit also rose 24% to Rmb3.5 billion.

Established in Guangdong province during the reign of Emperor Qianlong (1735-1796), Haitian, formerly known as the Foshan Sauce Shop, was restructured from a state-owned collective to a limited company in 1995 (the state no longer owns any shares in the firm). In February 2014, it went public on the Shenzhen A-share market.

Haitian’s success has little to do with a secret recipe or the superior taste of its soy sauce. Instead, the company has relied on low-cost production and an extensive distribution network to win market share.

During the 1990s, before China’s economy really boomed, Haitian poured Rmb30 million, a hefty amount at the time, into foreign-made machinery that made the brewing process cheaper and more efficient. After the turn of the century, it followed up with several large investments to boost its output by over 250 million tonnes, capitalising on the increase in the country’s spending power, says Huxiu, a portal.

To match the increase in production, Haitian also built a nationwide distribution system, which means that its products are sold not only in the larger cities but also in small counties and other hard-to-reach areas. By 2016, its network covered the entire country, serving over half a million supermarkets.

The company is also enthusiastic about product development, spending over Rmb400 million in research and development alone in the past year, up 20% from a year ago. Part of the spending was to ensure food safety, a challenge for many food producers in the country. The rest was employed to expand its product range, which now includes over 200 products in eight different categories (such as oyster sauce, vinegar and other flavouring sauces).

To enhance brand awareness, Haitian was also the lead sponsor for some of the biggest reality shows like The Next and The Brain. It also routinely conducts promotional activities at large supermarkets to drive sales.

“In soy sauce, Haitian and Lee Kum Kee are almost neck-and-neck for the top spot. In terms of product, it is difficult to tell them apart. However, Haitian offers a lot more discounts and promotions so in comparison, Haitian sells better,” one manager at Zhongbai Supermarket told Changjiang Business Daily.

But some argue that the company is over-valued at 40 times price-to-earnings, well ahead of the sector average. Baltimore-based McCormick, for instance, is trading at just 20 times projected earnings.

“When it comes to the craft of making soy sauce, even the most cutting edge technology can’t radically change how it’s made. And besides, there are already so many soy sauce makers in the market. So trading at 40 times seems way too high,” says National Business Daily.

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